The directors herewith present the Twenty first Annual Report together
 with the audited accounts of the company for the year ended March 31,
 2010.
 
 Financial Highlights
 
 Rs. in lacs 
 
                                           2009-10       2008-09
 
 Sales                                      691.58        655.02
 
 Other Income                               211.26        457.14
 
 Profit/ (Loss) before interest, 
 depreciation and amortization of
 Misc. expenditure                         (608.31)     (1140.02)
 
 Interest                                   195.42        143.48
 
 Depreciation                               324.34        294.07
 
 Amortization of Misc. expenditure          119.42        119.41
 
 Profit/(Loss) before tax                 (1247.49)     (1696.98)
 
 Provision for tax (including 
 deferred taxes)                             (2.03)         4.61
 
 Profit / (Loss) after tax                (1245.46)     (2167.07)
 
 Loss brought forward from previous year  (3867.92)     (1700.85)
 
 Profit/(Loss) carried forward to balance 
 sheet                                    (5113.38)     (3867.92)
 
 Earnings Per Share (Rs.) - Basic            (3.62)        (6.30)
 
 Companys business and operating results
 
 Revenues for the year were Rs. 902.84 lakhs, as against Rs. 1112.16
 lakhs during the previous year. The revenues were mainly from the
 Indian market with about Rs.8.98 lakhs coming from the export markets.
 Due to losses the company does not propose any dividend.
 
 Export market and strategical alliances:
 
 During the year under review, your Company has made exports to Kenya
 and Vietnam. Your Company has several distribution agreements in place
 including distribution agreement with Ranbaxy for CIS and Latin
 American countries.
 
 Share capital
 
 Your company has not made any allotment during the year
 
 Preferential allotment
 
 Out of monies collected by way of issue of preferential allotment of
 Rs.87.83 Crores, the Company has utilized Rs.80.33 Crores as on
 December 11, 2010 towards, reimbursement of secured and unsecured
 loans, incurring of R&D expenditure, expansion activities and working
 capital needs of the Company. The balance amount of Rs.7.50 Crores is
 kept in fixed deposits with banks.
 
 Internal audit and payment of Interest on Secured loans:
 
 The Company is in the process of implementing the internal audit
 system. Further, the Company as on date has paid all amounts of loan
 and interest except loan availed from Technology Development Board
 (TDB), as was reported in point no. xi in annexure to the Auditors
 Report. In respect of the loan availed from TDB, the Company is
 pursuing the matter with their head office, for reschedulement of the
 installments.
 
 Employee Stock Option Scheme
 
 Disclosures in this regard upto March 31, 2010 as required to be made
 in accordance with Clause 12 of SEBI (Employees Stock Option Scheme and
 Employee Stock Purchase Scheme) Guidelines, 1999 are provided in the
 Annexure - A to this report.
 
 Corporate Governance and Management Discussion and Analysis Report
 
 Separate reports on Corporate Governance along with Certificate of
 practicing Company Secretary on its compliance and Management
 Discussion and analysis forming part of this report are given in
 separate sections in this Annual Report.
 
 Status of Legal Cases filed against the Company
 
 The original Promoters have filed a Company Petition No. 51 of 2009
 dated 30.06.2009 before the Honble Company Law Board alleging
 oppression against Ranbaxy Laboratories Limited and its associates.
 Company is one of the Parties in this Company Petition.
 
 Further Ranbaxy Laboratories Limited has filed another Company Petition
 No. 83 of 2009 on 07.10.2009 before the Honble Company Law Board
 counter alleging oppression and mismanagement against the original
 Promoters Dr. Jayaram Chigurupati, Mrs.Padmasree Chigurupati and
 Zenotech, L.L.C. The Company is one of the Respondents in this Petition
 also.
 
 The Board of Directors have authorised Dr.Jayaram Chigurupati, Managing
 Director and Mr. Srivenkateswara Rao Sr. Manager- Finance to represent
 the Company before the Company Law Board and other courts and tribunals
 on May 21, 2010
 
 Mr. D. Seshadri Naidu, Advocate was appointed as Counsel to represent
 the Company before the Honble Company Law Board and High Courts.
 
 Mr. D. Seshadri Naidu, Advocate appeared before the Honble Company Law
 Board and filed the documents with the Company Law Board. Copy of the
 same is placed before the Board for its perusal.
 
 Mr. D. Seshadri Naidu is appearing before the Honble High Court
 representing the Company.
 
 When the matter stood thus, the Company through its Managing Director
 has issued a notice dated 13.02.2010 for termination of the
 Development, License and Supply Agreement for Marketing and Sales dated
 31.01.2007 related to GCSF on 19.04.2010 for the breach of conditions
 by Ranbaxy Laboratories Limited. Ranbaxy Laboratories Limited replied
 to the same vide its letters dated 04.05.2010.
 
 Ranbaxy Laboratories Limited has filed a Company Application No. 80 of
 2010 in Company Petition No. 51 of 2009 dated 08.05.2010. The Honble
 Company Law Board passed an order dated 21.05.2010 and passed the
 following order:
 
 i.  the operation of the termination notice dated February 13, 2010
 issued by Zenotech stands stayed
 
 ii.  Zenotech is restrained from acting on the termination notice dated
 13.02.2010.
 
 Aggrieved with the order of the Company Law Board the Company has filed
 an appeal against the order vide Company Appeal No. 12 of 2010 dated
 19.07.2010, which is pending before the Honble High Court of Andhra
 Pradesh.
 
 Meanwhile Ranbaxy filed a Company Application No. 150 of 2010 dated
 24.09.2010 in Company Petition No. 83 of 2009 under Section 186 for
 convening an Extra Ordinary General Meeting in order to appoint three
 nominees on the board of the Company.  The Honble Company Law Board
 allowed the Application and passed the orders allowing the calling of
 EGM for appointment of three directors on 24.11.2010.
 
 The Original Promoters have challenged the order before the Honble
 High Court vide Company Appeal No. 20 of 2010 on 30.11.2010 which is
 pending for disposal.
 
 The Company has initiated arbitration proceedings against Ranbaxy
 Pharmaceuticals, Inc, a subsidiary of Ranbaxy Laboratories Limited for
 breach and non-performance by Ranbaxy Pharmaceuticals, Inc pursuant to
 Development, Supply and Marketing Agreements dated March 3rd, 2007 in
 the week of October 18, 2010. This relates to seven ANDAs filed from
 Zenotech in December, 2007. Further the Company has issued a notice for
 Demand of Arbitration to Ranbaxy Laboratories Limited for breach and
 non-performance by Ranbaxy Pharmaceuticals, Inc pursuant to
 Development, Supply and Marketing Agreements dated January 31, 2007
 related to GCSF on November 1, 2010.
 
 Subsidiary Companies
 
 1) The Company has a wholly owned subsidiary company, Zenotech
 Farmaceutica Do Brasil Limitada (ZFDBL), Brazil. The subsidiary company
 was acquired in January 2005. The subsidiary company has received
 ANVISA approval for its warehouse facility in Brazil. Further
 regulatory approvals are to be received before commencement of
 commercial business.  The Company has consolidated the financials in
 accordance with the IGAAP.
 
 2) The Company has a wholly owned subsidiary company, Zenotech
 Laboratories Nigeria Limited (ZLNL), Nigeria. The subsidiary company
 was established in August 2005. The Company has obtained regulatory
 clearances for its product range to commence commercial business and is
 already supplied with stocks, which are yet to be sold. The Company has
 consolidated the financials in accordance with the IGAAP.
 
 3) The Company has a wholly owned subsidiary company, Zenotech Inc.,
 New Jersey, USA. The subsidiary company has consolidated the financials
 in accordance with the IGAAP.
 
 However, in view of serious software problem encountered in accounting
 packages used by the subsidiaries as mentioned at 1 to 3 above, they
 could submit only un-audited financial statements, as approved by their
 respective Board of Directors as per Indian GAAP and the directors of
 your company have relied upon the same. In terms of section 212 of the
 Companies Act, 1956 the said un-audited financial statements as
 approved by the respective boards of above subsidiaries as well as a
 statement prepared pursuant to Section 212 (1) (e) of the said Act are
 attached herewith.
 
 Directors Responsibility Statement
 
 In compliance of Section 217 (2AA) of the Companies Act, 1956, the
 Board submits as under:
 
 — in the preparation of the annual accounts, the applicable accounting
 standards had been followed along with proper explanation relating to
 material departures, if any;
 
 — the Directors had selected such accounting policies and applied them
 consistently and made judgments and estimates that are reasonable and
 prudent so as to give a true and fair view of the state of affairs of
 the Company at the end of the financial year and of the profit or loss
 of the Company for that period;
 
 — the Directors had taken proper and sufficient care for the
 maintenance of adequate accounting records in accordance with the
 provisions of the Act for safeguarding the assets of the Company and
 for preventing and detecting fraud and other irregularities;
 
 — the Directors had prepared the annual accounts on a going concern
 basis.
 
 Deposits
 
 The Company has not accepted any deposit under Section 58A of the
 Companies Act, 1956 during the year under review.
 
 Directors
 
 The Board of Directors of the Company consists of three Directors one
 Managing Director and two independent Directors appointed by the
 Honble High Court of Andhra Pradesh vide its order dated 23.02.2010,
 hence none of the directors are liable to retire by rotation.
 
 Auditors
 
 M/s Deloitte Haskins & Sells, Chartered Accountants, Statutory Auditors
 of your Company hold office until the conclusion of the ensuing Annual
 General Meeting. They have shown their inability to be re-appointed as
 the Statutory Auditors. Therefore, the Board of Directors has proposed
 the appointment of M/s. BSR & Associates, Chartered Accountants, as the
 Statutory Auditors.  The Company has received a certificate from them
 to the effect that their appointment if made would be within the limits
 prescribed under Section 224(1) of the Companies Act, 1956.
 
 
 Managements Response to Auditors Qualifications/Remarks:
 
 1. In respect of observation made at point No. 4 (a) of the report, in
 the opinion of the Management, Zenotech Inc. in USA, a 100% subsidiary
 of the Company has many valuable IPRs, which were not considered and
 evaluated due to prevailing Accounting standards and norms. The
 Management further feels that at the consolidate level there is no
 erosion of monies utilised by the Zenotech Inc., USA for this purpose.
 
 2.  In respect of observation made at point No. 4 (b) of the report,
 the Company is holding 24% stake in Credence Organics Private Limited
 aggregating to Rs. 0.24 lakhs and has also advanced a loan of Rs. 14.71
 lakhs for its business purpose and in the opinion of the management,
 Credence Organics Private Limited is in the process of building its
 factory and the loan will be recoverable once it commences its
 operations.
 
 3.  In respect of observation made at point No. 4 (c) of the report,
 the Expenditure of Rs. 1040.03 lakhs, being spent as capital
 work-in-progress, is represented by assets including buildings, plant &
 machinery and other assets. In the opinion of the Management, the
 stated value of these assets is realizable value and thus the same was
 appropriately stated.
 
 4.  In respect of observation made at point No. 4 (d) of the report, in
 the opinion of the Management the carrying cost of Plant and Machinery
 of Rs. 4,845.58 lakhs is appropriate considering the value of
 investment made to meet the objects of the company and the potential
 revenues can be generated there from over a period of time. Further,
 the management did not foresee any reason which may force the company
 to stop its business immediately.
 
 5.  In respect of observation made at point No. 4 (e) of the report, in
 the opinion of the Management, the Product Development Expenditure of
 Rs. 152.32 lakhs would be written off in the future years.
 
 6.  In respect of observation made at point No. 5 of the report, the
 disclosure relating to earning per shares as required in terms of the
 Guidance Note on Accounting for employee share based payment has been
 made in Directors Report for the year ended March 31, 2010.
 
 7.  In respect of observation made at point No. 6 of the report, the
 company did not owe any amounts to Micro and Small Enterprises as at
 the Balance Sheet date.
 
 Energy Conservation, Research and Developments, Technology absorption,
 Foreign exchange earnings and Outgo
 
 The particulars relating to energy conservation, research and
 development, technology absorption, foreign exchange earnings and
 outgo, as required to be disclosed under Section 217(1 )(e) of the
 Companies Act, 1956 read with Companies (Disclosure of Particulars in
 the Report of Board of Directors) Rules, 1988 are provided as Annexure
 - B to this report.
 
 Acknowledgement
 
 The Board of Directors would like to express their grateful
 appreciation for the assistance and co-operation received from the
 Financial Institutions and Banks, like Andhra Pradesh State Financial
 Corporation (APSFC), Technology Development Board (TDB), Yes Bank,
 other banks, Government Authorities, Customers, Vendors and Members
 during the year under review.
 
 Yours Directors also wish to place on record the sincere efforts and
 committed services put in by the employees at all levels.
 
                                  For and on behalf of the Board
 
 Place :  Hyderabad                     Dr. Jayaram Chigurupati
 
 Date   :  December 11, 2010                  Managing Director